Wages forecast to have increased 0.5% over March to May on a year earlier while inflation edges up

The squeeze on British households will return to centre stage this week as official figures confirm a buoyant jobs market is failing to deliver payrises for most workers.

Numbers showing weak wage growth as inflation edges up will provide traction for Labour’s election campaign around lingering cost-of-living crisis. Although, in a potential boost to chancellor, George Osborne, further signs of benign pay growth could stay the Bank of England’s hand and see interest rates remain at their record low 0.5% for longer.

The consumer price index measure of inflation due on Tuesday is expected to rise to 1.6% in June from 1.5% in May, according to the consensus forecast in a Reuters poll of economists. That is well below the Bank’s 2% target for annual price rises in the economy, but it far outstrips the latest average wage growth, leaving workers worse off in real terms.

The latest data from the labour market is published on Wednesday. Wages are forecast to have edged up just 0.5% from March to May on a year earlier, a slower pace than the 0.7% growth over February to April.

The unemployment rate is forecast to come in at 6.5% for the three months to May after it 6.6% in the three months to April. That would be the lowest jobless rate since November 2008 but the Trades Union Congress (TUC) says unemployment is still higher than before the financial crisis in every region of the UK. In an analysis of official data on Monday it also says unemployment is higher across all age groups with young people in particular missing out.

The TUC general secretary, Frances O’Grady, said: “The recent upturn in the economy has prompted lots of speculation about an increase in interest rates. Those hawks that are keen for interest rates to rise have forgotten that unemployment is still over two million.

“The talk in the City and around Westminster may be about a fast growing economy but the recovery still feels a good way off for millions of people still desperate for work across the rest of the country.”

The TUC research shows that half a million more people were unemployed in January-March 2014, the latest available figures, compared with January-March 2008. Yorkshire and Humberside has the biggest jobs gap, with almost 100,000 more unemployed people at present than before the recession. Northern Ireland has the biggest gap between its current and pre-recession unemployment rates.

The biggest unemployment gap by age group was among young people, with the number of unemployed 16 to 24-year-olds reaching 167,000, much higher than six years ago. In most parts of the UK the jobs gap for young people is wider than among any other age group, the TUC said.

Although the economic news has been mixed in recent weeks, and there have been warnings growth slowed in the second quarter of the year from a strong start to 2014, financial markets have priced in a rise in interest rates by the end of the year.

Economists are divided, with some saying the Bank’s monetary policy committee should act sooner rather than later to avoid having to raise rates aggressively when they have to lift borrowing costs. Others say the Bank will want more evidence that the recovery is secure and that spare capacity in the economy is being used up. The strong pound will also be occupying policymakers’ thoughts, said the thinktank Capital Economics. It has highlighted the impact from sterling’s rise against other major currencies, which has made British imports cheaper, thereby keeping inflation in check.

“While the recovery’s momentum means that an interest rate hike is now not too far away, sterling’s current strength – and the prospect of further strength if policy is tightening quickly – seems likely to limit the speed at which rates rise. Indeed, we suspect that sterling is one factor among many that will mean the MPC raises interest rates to just 1% by the end of next year,” said Samuel Tombs and Paul Hollingsworth at Capital Economics.

The outlook for interest rates is also muddied by the divergence between official figures and business surveys, with the latter showing hiring, orders and output all strong in recent months.

That upbeat tone is echoed in a report on Monday suggesting employment levels rose at their fastest pace for more than a decade in England last month. But growth in overall business activity for England and Wales eased off somewhat, according to the latest Lloyds Bank Regional Purchasing Managers’ Index. The poll’s main index fell to 58.5 in June from 59.8 in May, but was still well above the 50-mark denoting growth. Hiring across English regions picked up at the strongest pace since records began in 2001.

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